Summer 2020 Valuation of non-recourse stock loan using an integral equation approach
Nhat-Tan Le, Minh-Man Ngo
J. Integral Equations Applications 32(2): 181-192 (Summer 2020). DOI: 10.1216/jie.2020.32.181


An integral equation approach is adopted to price American-style non-recourse stock loans with finite maturities. In particular, we use Fourier transform to reduce the partial differential equation governing the price of an American-style non-recourse stock loan into an ordinary differential equation, the solution of which can be easily found (in the Fourier space) and analytically inverted into the original space. As a result, we can decompose the price of an American non-recourse stock loan into two main components: the price of its European counterpart and the early exit premium. This decomposition allows us to break the pricing problem of American stock loans into two simple steps: 1) finding the optimal exit prices; 2) calculating the American non-recourse stock loans. Our obtained numerical results appear to fit very well with those obtained from literature.


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Nhat-Tan Le. Minh-Man Ngo. "Valuation of non-recourse stock loan using an integral equation approach." J. Integral Equations Applications 32 (2) 181 - 192, Summer 2020.


Received: 22 November 2018; Accepted: 22 June 2019; Published: Summer 2020
First available in Project Euclid: 28 August 2020

zbMATH: 07282583
MathSciNet: MR4141404
Digital Object Identifier: 10.1216/jie.2020.32.181

Primary: 34A12

Keywords: Fourier transform , optimal exit prices , standard stock loan

Rights: Copyright © 2020 Rocky Mountain Mathematics Consortium


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Vol.32 • No. 2 • Summer 2020
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